Wal-Mart Stores Inc. (WMT) confirmed this week that a previously disclosed investigation into bribery at its overseas units expanded into markets including Brazil, China and India. While it’s positive that the retailer is taking steps to examine allegations of such behavior, Wal-Mart could do more to improve the strength of the board that supervises such matters.

The New York Times reported in April that Wal-Mart’s Mexican unit paid bribes to obtain permits in its rush to build stores, as we had discussed in an article at the time. Wal-Mart said in May that its audit committee was conducting an internal investigation at foreign subsidiaries including in Mexico.

Wal-Mart's board could be better prepared to handle the task. The Walton family dominates; more than half the company’s shares are held by insider and 5% owners, presenting the risk that minority shareholder interests might be subordinated to those of others. The 16-member board also includes people who lack independence, such as the chairman S. Robson Walton, his brother Jim Walton and his son-in-law Gregory B. Penner.

This board has demonstrated some capacity for going easy on Wal-Mart’s senior managers. For example, CEO Michael T. Duke received around $2.88 million in cash incentive payment for fiscal 2012 despite Wal-Mart’s total operating income being below three out of the four target goals for that year under the annual cash incentive plan. Wal-Mart notes that he received “significantly less” than his target payout of $4.05 million and his incentive payments in the previous two years, but it remains unclear to what extent incentive pay acts as an incentive in this case. In another example of perks for Wal-Mart’s named executive officers that aren’t directly tied to performance, all five received more than $40,000 in payment for the use of personal aircraft in fiscal 2012, with $99,861 for Mr. Duke’s. The CEO earned $14.9 million from exercising stock options and $18.1 million in total summary compensation that year.

The retailer’s financial reporting suggests that its managers tend to use short-term thinking in their approach to boosting profit, as we noted in October. Wal-Mart’s fantastic performance has been fueled in part by borrowed money which, albeit affordable for a company so huge, is not always used to grow operations.

The company’s financial statements reflect an AGR® score of 5, indicating higher accounting and governance risk than 95% of comparable companies. Wal-Mart is rated “D” on its environmental, social and governance (ESG) risk overall, given factors such as the recent investigation into its possible bribery overseas and labor rights practices. On its governance alone, Wal-Mart is rated “C.”

Wal-Mart said in its filing on Nov. 15 that its investigation into possible bribery violations incurred costs amounting to $99 million during the nine months ended Oct. 31, as it responded to requests for information, defended shareholder lawsuits and conducted the review. While Mr. Duke's pay cost Wal-Mart investors less, the company could possibly save more money down the line by improving its corporate governance enough to better prevent such questioning.

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